U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998
TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number 0-11038
BOATRACS, INC.
(Exact name of small business issuer as specified in its charter)
California 33-0644381
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
10675 Sorrento Valley Road, Suite 200, San Diego, CA 92121
(Address of Principal Executive Offices)
(619) 657-0100
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or
15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.
Yes X No __
APPLICABLE ONLY TO CORPORATE FILERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
18,886,377 shares of common stock as of July 31, 1998.
Transitional Small Business Disclosure Format (check one): Yes
__ No X
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOATRACS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months Ended June 30, Six months Ended June 30,
1998 1997 1998 1997
REVENUES:
Communications system $1,168,573 $635,524 $2,352,611 $1,135,348
Data transmission
and messaging 901,355 646,015 1,712,097 1,277,434
TOTAL REVENUES 2,069,928 1,281,539 4,064,708 2,412,782
COSTS AND EXPENSES:
Communications systems 738,208 419,569 1,489,672 755,383
Data transmission and
messaging 511,646 336,403 957,373 646,780
Selling, general and
administrative 917,742 596,443 1,618,106 1,200,360
TOTAL COSTS AND
EXPENSES 2,167,596 1,352,415 4,065,151 2,602,523
(LOSS) FROM OPERATIONS (97,668) (70,876) (443) (189,741)
Interest income 4,922 2,525 38,117 6,193
Interest expense 0 0 0 (2,060)
NET INCOME (LOSS) ($92,746) ($68,351) $37,674 ($185,608)
BASIC EARNINGS PER
COMMON SHARE ($.01) ($.01) $.00 ($.01)
DILUTIVE EARNINGS PER
COMMON SHARE N/A N/A $.00 N/A
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 15,875,443 12,602,310 15,853,527 12,602,310
Dilutive effect of:
Employee stock options n/a n/a 955,485 n/a
Warrants n/a n/a 92,845 n/a
Weighted average of
common shares
outstanding assuming
dilution 15,875,443 12,602,310 16,901,857 12,602,310
See Notes to Consolidated Financial Statements
BOATRACS, INC.
CONSOLIDATED BALANCE SHEET
June 30, December 31,
ASSETS 1998 1997
(Unaudited)
CURRENT ASSETS:
Cash $1,961,148 $392,712
Accounts receivable - net 1,395,124 937,010
Inventories 115,573 234,092
Deposit in escrow 500,000
Prepaid expenses and other assets 218,258 107,435
TOTAL CURRENT ASSETS 4,190,103 1,671,249
PROPERTY - net 322,592 223,863
PREPAID ACQUISITION COSTS 165,968
NOTES RECEIVABLE 347,463 310,463
GOODWILL - net 788,667 830,917
TOTAL $5,814,793 $3,036,492
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,471,801 $1,133,997
Accrued expenses 494,610 265,276
Acquisition cost payable 250,000 250,000
TOTAL CURRENT LIABILITIES 2,216,411 1,649,273
STOCKHOLDERS' EQUITY:
Preferred stock,
no par value; 1,000,000
shares authorized,
no shares issued
Common stock, no par value;
100,000,000 shares authorized,
15,886,377 and 15,806,977
shares issued and outstanding
in 1998 and 1997, respectively
7,004,897 6,949,244
Notes receivable for common stock
issued (2,117,836)
Accumulated deficit (3,406,515)(3,444,189)
TOTAL STOCKHOLDERS' EQUITY 3,598,382 1,387,219
TOTAL $5,814,793 $3,036,492
See Notes to Consolidated Financial Statements
BOATRACS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
1998 1997
Operating activities:
Net income (loss) $37,674 ($185,608)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization 114,399 25,193
Changes in assets and liabilities:
Accounts receivable, net (458,114) (71,019)
Inventories 30,147 (33,903)
Deposit in escrow (500,000)
Prepaid expenses and other
assets (110,823) (92,416)
Accounts payable and accrued
expenses 567,138 521,870
Net cash (used in) provided by
operating activities (319,579) 164,117
Investing activities:
Capital expenditures (82,506) (59,172)
Net maturities of investment
securities 179,379
Prepaid acquisition costs (165,968) 0
Net cash (used in) provided by
investing activities (248,474) 120,207
Financing activities:
Proceeds from notes receivable
issued for common stock 2,073,562 105,960
Short-term margin loan on
securities (139,268)
Cash received for stock options
and warrants issued and exercised 99,927
Issuance of notes receivable (37,000) (51,000)
Net cash provided by (used in)
financing activities 2,136,489 (84,308)
Net increase in cash 1,568,436 200,016
Cash at beginning of period 392,712 103,144
Cash at end of period $1,961,148 $303,160
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Reclassification of evaluation
inventory units to property
$88,372
Discount on redemption of note
receivable $44,274
for common stock
See Notes to Consolidated Financial Statements
BOATRACS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements as of and for the six
months ended June 30, 1998 and 1997 are unaudited and have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation
have been included. Operating results for the six months ended
June 30, 1998 are not necessarily indicative of the results that
may be expected for any other interim period or for the year
ending December 31, 1998.
NOTE 2 - ACQUISITION
On November 1, 1997, the Company purchased certain assets and
liabilities of MED Associates, Inc. ("MED") for $500,000 cash,
and 300,000 shares of restricted common stock. The stock is
subject to an option by the Company to purchase all of the issued
stock if a certain earnings level for the fiscal year ended
December 31, 1998, is not met and will be decreased one share for
every dollar such earnings are not achieved. Goodwill in the
amount of $845,000 was recorded and is amortized over ten years.
MED is a Mississippi-based provider of software applications and
service solutions to the marine industry. The acquisition was
accounted for as a purchase. Accordingly, the assets and
liabilities of MED are included in the consolidated balance sheet
of June 30, 1998 and December 31, 1997. The results of MED's
operations from the date of the acquisition to December 31, 1997
were not significant.
A deposit of $500,000 has been placed in escrow pursuant to a
letter of intent to acquire Enerdyne Technologies, Inc. The
acquisition was finalized on July 7, 1998. (See "Subsequent
Events").
NOTE 3 - NET EARNINGS PER SHARE
The consolidated financial statements are presented in accordance
with SFAS No. 128, "Earnings Per Share". Basic earnings per
common share are computed using the weighted average number of
common shares outstanding during the period. Diluted earnings
per common share incorporate the incremental shares issuable upon
the assumed exercise of stock options and warrants. For the
quarter ended June 30, 1998 and 1997 and the six months ended
June 30, 1997 the Company reported a net loss and therefore the
incremental shares issuable upon the exercise of stock options
and warrants were not used as they were anti-dilutive.
NOTE 4 - BALANCE SHEET DETAILS
June 30, December 31,
1998 1997
(Unaudited)
Accounts Receivable $1,428,124 $ 949,874
Less allowance for
doubtful accounts 33,000 12,864
$1,395,124 $937,010
Property - at cost:
Computers and equipment $543,475 $372,597
Less accumulated
depreciation 220,883 148,734
$322,592 $223,863
Goodwill $845,000 $845,000
Less amortization 56,333 14,083
$788,667 $830,917
Depreciation expense was $72,149 for the six months ended June
30, 1998 and $62,768 for the year ended December 31, 1997.
Amortization expense was $42,250 for the six months ended June
30, 1998 and $14,083 for the year ended December 31, 1997.
NOTE 5 - NOTES RECEIVABLE
Canadian Company - The Company has a demand note receivable
agreement with a Canadian company that provides for periodic
advances. Outstanding advances on the note bear interest at 9.0%
and are due on demand. Advances on the note totaled $347,463 and
$310,463 at June 30, 1998 and December 31, 1997, respectively.
The note receivable was classified as long-term based upon the
Company's intent not to request payment prior to July 1, 1999.
In September 1996, the Company entered into a Joint Venture
agreement with the Canadian company whereby the Canadian company,
through its subsidiary, will act as the sole representative for
marketing, distribution and sale of the BOATRACS system, and any
related business in certain specified Canadian territory. Under
the Joint Venture agreement, the Company was granted an option to
purchase 3,100 of the 5,100 outstanding shares of the Canadian
company from OceanTrac Systems LTD, the sole shareholder, for a
price of U.S. $6.12 per share. The Company also received a
warrant to purchase an additional 4,900 shares of the Canadian
company for a price of U.S. $6.12 per share. On July 1 1998, the
Company exercised both the option and warrant. (see "Subsequent
Events").
Stockholder - On October 15,1997, the Company received a
promissory note from an officer, director and shareholder of the
Company in the amount of $1,930,915 with a rate of 5.77%. The
note was issued in connection with a Restricted Stock Purchase
Agreement of the same date for a total of 2,900,000 shares of the
Company's stock. The note called for semi-annual installments
with the final payment due on April 15, 2000. The principal
balance at December 31, 1997 was $1,930,915. Accrued interest
was $23,211 at December 31, 1997. During June 1998 the note and
accrued interest was purchased by an outside party at a discount
of $44,274, which was recorded as a deduction to the common stock
originally issued.
NOTE 6 - AGREEMENTS WITH QUALCOMM INCORPORATED
On March 31, 1995, the Company entered into a Subscription
Agreement and an Amendment (#6) to the License and Distribution
Agreement with QUALCOMM Incorporated, the Company's supplier of
OmniTRACS Satellite-based communications and tracking equipment.
Through these two agreements QUALCOMM acquired 1,112,265 shares,
or approximately 7%, of the Company's common stock. The shares
were issued for a total consideration of $737,000, which is paid
by providing discounts on future purchases of OmniTRACS equipment
and data transmission and messaging from QUALCOMM. The
transaction was recorded as a note receivable for shares issued
which is reduced as discounts are earned. During the second
quarter of 1998, a total of $87,970 in discounts had been earned
which eliminated the receivable balance, compared to the second
quarter of the prior year when $59,652 of discounts were earned
reducing the receivable balance to $315,462.
NOTE 7 - SELLING STOCKHOLDER REGISTRATION WITH THE SECURITIES AND
EXCHANGE COMMISSION
On April 29, 1998, a Registration Statement on Form SB-2 was
filed with the Securities & Exchange Commission ("Commission")
which provides for registration of 5,370,070 shares of common
stock on behalf of certain selling stockholders, including (1)
QUALCOMM, Inc., the Company's sole supplier, (2) shares received
by an officer and director in connection with a Restricted Stock
Purchase Agreement, (3) warrants granted to two directors of the
Company, (4) warrants granted to a Company consultant and (5)
shares purchased by shareholders in private transactions. The
Company did not receive any proceeds related directly to the Form
SB-2. The Registration Statement is not yet effective and is
currently under review by the Commission.
NOTE 8 - STOCK OPTIONS
Under the amended 1996 Stock Option Plan ("the Plan"), the
Company may grant incentive and non-qualified options to purchase
up to 2,000,000 shares of common stock to employees, directors
and consultants at prices that are not less than 100% (85% for
non-qualified) of fair market value on the date the options are
granted. Options issued under the Plan expire seven years after
the options are granted and generally become exercisable ratably
over a five-year period following the date of grant. At June 30,
1998, there were 1,143,300 options outstanding.
The Company applies Accounting Principles Board of Opinion no.
25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its Plan. Accordingly, no
compensation expense has been recognized for its stock-based
compensation plan. Had compensation cost been determined based
upon the fair value at the grant date for awards under the Plan
consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," the Company's net loss and pro forma net
loss for the period ended December 31, 1997 would have been
increased by approximately $73,327, or $0.01 per share.
Under FASB 123, the fair value of the options granted during 1997
is estimated as approximately $208,000 on the date of grant using
the Black-Scholes option-pricing model with the following
assumptions: no dividend yield, expected volatility of 277%, risk-
free interest rate of 5.5%, and expected life of 5.5 years.
NOTE 9 - SALARY REDUCTION SIMPLIFIED EMPLOYER PLAN (SAR-SEP)
During September 1996, the Company approved the adoption of a
Salary Reduction Simplified Employer Plan (SAR-SEP) allowing
eligible employees to contribute savings on a pretax basis
effective January 1996. Employees may contribute up to 15% of
their salary, not to exceed $9,500 annually. A discretionary
contribution is determined each year by the Company. As of the
quarter ended June 30, 1998, the Company elected not to
contribute to the Plan.
NOTE 10 - SUBSEQUENT EVENTS
Canadian Acquisition
On July 1, 1998, the Company exercised both its option and
warrant to purchase the Company's Joint Venture partner in
Canada, by exercising 8,000 shares of the 10,000 shares issued
and outstanding for a $48,960 reduction of the outstanding
advances on a $347,463 note receivable. Simultaneously,
OceanTracs Systems LTD shareholders agreed to convey the
remaining 2,000 shares of the Canadian company and the assets of
OceanTracs Systems to the Company for consideration of 5,000
shares of the Company's stock valued at $4.75 per share. The
Canadian company is now a wholly owned subsidiary of the Company.
The acquisition has been accounted for as a purchase, and
allocation of the purchase price is being finalized.
Enerdyne Acquisition
On July 7, 1998, the Company acquired all of the outstanding
shares of Enerdyne Technologies, Inc. ("ET, Inc.") a California
corporation who provides versatile, high performance digital
video compression products to the government and commercial
markets. The acquisition was effected by means of a merger
whereby Enerdyne was merged with and into the Company's wholly
owned subsidiary, Boatracs Acquisition, Inc., a California
corporation. Boatracs Acquisition has changed its name to
Enerdyne Technologies, Inc.
Pursuant to the terms of the Merger Agreement, the consideration
paid to the selling shareholders consisted of an aggregate of:
(i) $1,953,800 in cash, (ii) $7,815,200 principal amount of
senior promissory notes payable on July 7, 1999 and bearing
interest at 8.5% per annum ("Senior Notes"), (iii) $1,953,800
principal amount of subordinated promissory notes ("Subordinated
Notes") with specified minimum annual payments and any remaining
amounts payable June 30, 2002 and bearing interest at 8.5% per
annum, (iv) 2,930,700 shares of Common Stock of the Company and
(v) warrants expiring on June 30, 2002 to purchase 488,450
shares of Common Stock of the Company at a purchase price of
$2.00 per share. Subject to terms and conditions, the Senior
Notes are secured by all the assets of ET, Inc. Additionally,
two of the Company's directors, officers and significant
shareholders each severally guaranteed one-third of the unpaid
principal of the Senior Notes as of July 7, 1999. The Company
also agreed to satisfy the obligations of ET, Inc. regarding
payments to its financial advisors through delivery of $46,200 in
cash, $184,800 of Senior Notes, $46,200 of Subordinated Notes,
69,300 shares of Common Stock and Warrants for the purchase
11,550 shares of Common Stock. The allocation of the purchase
price is being finalized.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company has distribution rights in the United States for
marine application of the OmniTRACS system of satellite-based
communications and tracking systems manufactured by QUALCOMM
Incorporated ("QUALCOMM"). In addition, the Company develops
application software for marine application of the OmniTRACS
system. The OmniTRACS system, as adapted and enhanced by the
Company for marine applications, provides confidential two-way
communications between vessels at sea and base stations on land
or with other vessels and is effective while a vessel is within
the satellite's "footprint," which extends roughly 200 to 400
miles offshore of the continental United States. The system also
allows for hourly position tracking, monitoring, and data
transmission and, using supplementary products, can provide
engine performance and fuel consumption monitoring.
Statements within this 10-QSB which are not historical facts,
including statements about strategies and expectations for new
and existing products, technologies, and opportunities, are
forward-looking statements that involve risks and uncertainties.
The Company wishes to caution readers to the risk factors
inherent to the business including, but not limited to, the
continuing reliance upon QUALCOMM, Inc., the sole supplier of
equipment sold by the Company, and reliance upon QUALCOMM's
Network Management Facility through which the Company's message
transmissions are formatted and processed. These and other risks
are more fully described in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997.
For the three months ended June 30, 1998 and 1997
Total revenues for the quarter ended June 30, 1998, were
$2,069,928 an increase of $788,389 or 61.5% as compared to total
revenues of $1,281,539 for the quarter ended June 30, 1997.
Communications systems revenues, which consist of revenues from
the sale of BOATRACS systems, related software and revenues from
MED Associates, Inc. ("MED") were $1,168,573 or 56.5% of total
revenues, an increase of $533,049 or 83.9% compared to $635,524
or 49.6% of total revenues in the second quarter of 1997. The
increase in communication systems revenues compared to the same
period of the prior year, primarily reflects increased sales of
communication units to vessels in the United States, an increase
in software revenues, and revenues from MED which the Company
acquired in November, 1997 (see Note 2). The increase was
partially offset by a decrease in the sale of communications
units in Europe and Canada in the second quarter of 1998 compared
to the same period of 1997. Data transmission and messaging
revenues were $901,355 or 43.5% of total revenues, an increase of
$255,340 or 39.5% compared to $646,015 or 50.4% of total revenues
in the second quarter of 1997. The increase in revenues reflects
an overall increase in data transmission and messaging services
provided by the Company as a result of growth in the number of
BOATRACS systems installed on vessels.
Communications systems expenses were $738,208 or 63.2% of
communications systems revenues for the quarter ended June 30,
1998, an increase of $318,639 or 75.9%, compared to $419,569
which represented 66.0% of communications systems revenues in the
corresponding quarter of the prior year. The dollar increase in
expenses primarily reflects the increase in sales of BOATRACS
systems. The increase in the gross margin on communication
systems revenues primarily reflects a decrease in price from the
Company's supplier in June, 1997 with an additional promotional
discount in the second quarter of 1998 and additional sales of
software with higher gross margins. The increase was partially
offset by an increase in sales to dealers at discounted prices.
Data transmission and messaging expenses were $511,646 or 56.8%
of data transmission and messaging revenues for the quarter ended
June 30, 1998, an increase of $175,243 or 52.1%, compared to
$336,403 which represented 52.1% of data transmission and
messaging revenues in the corresponding quarter of the prior
year. The dollar increase in costs reflects increased data
transmission and messaging services rendered due to increased
BOATRACS systems installed on vessels. The decrease in the gross
margin on data transmission and messaging revenues is due to
credits given to customers for miscellaneous testing and a change
in the customer mix as a result of additional fishing customers
in the United States. In addition, messaging customers have
increased in the European and Canadian markets which have a lower
gross margin.
Selling, general and administrative expenses were $917,742 or
44.3% of total revenues for the quarter ended June 30, 1998, an
increase of $321,299 or 53.9%, compared to $596,443 or 46.5% of
total revenues in the prior corresponding quarter. The increased
dollar amount is primarily attributable to increases in salary
expenses due to additional employees, amortization of goodwill on
the acquisition of MED, increase in legal and accounting expenses
due to an acquisition and a lawsuit (see "Legal"), an increase in
European travel, general office expenses and rent due to an
office relocation, and operating expenses of MED. In addition,
certain European evaluation inventory units were reclassified to
property in the amount of $88,372 which increased depreciation
expense. Software development costs are written off as incurred.
Interest income of $4,922 in the quarter ended June 30, 1998,
represents interest earned on a deposit in escrow for the
purchase of Enerdyne which was completed in July 1998. This
represents an increase of $2,397 or 94.9% compared to $2,525 in
the prior year which represented interest earned on investments..
For the six months ended June 30, 1998 and 1997
Total revenues for the six months ended June 30, 1998 were
$4,064,708 an increase of $1,651,926 or 68.5% as compared
to total revenues of $2,412,782 for the six months ended June 30,
1997.
Communications systems revenues, which consist of revenues from
the sale of BOATRACS systems, related software and revenues from
MED Associates, Inc. ("MED") were $2,352,611 or 57.9% of total
revenues, an increase of $1,217,263 or 107.2% compared to
$1,135,348 or 47.1% of total revenues in the first six months of
1997. The increase in communication systems revenues compared to
the same period in the prior year, primarily reflects increased
sales of communication units to vessels in the United States, an
increase in software revenues and the income from MED which the
Company acquired in November, 1997 (see note 2). The increase
was partially offset by a decrease in the sale of communications
units in Europe and Canada in the first six months of 1998
compared to the same period in 1997. Data transmission and
messaging revenues were $1,712,097 or 42.1% of total revenues, an
increase of $434,663 or 34.0% compared to $1,277,434 or 52.9% of
total revenues in the comparable six months of 1997. The
increase in revenues reflects an overall increase in data
transmission and messaging services provided by the Company as a
result of growth in the number of BOATRACS systems installed on
vessels.
Communications systems expenses were $1,489,672 or 63.3% of
communications systems revenues for the six months ended June
30, 1998, an increase of $734,289 or 97.2% compared to $755,383
which represented 66.5% of communications systems revenues in
the corresponding quarter of the prior year. The dollar
increase in expenses primarily reflects the increase in sales
of BOATRACS systems. The increase in the gross margin in
communications systems revenues primarily reflects a decrease
in price from the Company's supplier in June 1997 and an
additional promotional discount in the second quarter of 1998,
offset by an increase in sales to dealers at discounted prices.
Data transmission and messaging expenses were $957,373 or 55.9%
of data transmission and messaging revenues for the six months
ended June 30, 1998, an increase of $310,593 or 48.0% compared
to $646,780 which represented 50.6% of data transmission and
messaging revenues in the corresponding six months of 1997.
The dollar increase in costs reflects increased data
transmission and messaging services rendered due to increased
BOATRACS systems installed on vessels. The decrease in gross
margin in data transmission and messaging revenues is due to a
continuing change in the customer mix in the United States and
credits given to customers for miscellaneous testing. In
addition, messaging customers have increased in the European
and Canadian markets which have a lower gross margin.
Selling, general and administrative expenses were $1,618,106 or
39.8% of total revenues for the six months ended June 30, 1998,
an increase of $417,746 or 34.8% compared to $1,200,360 or 49.8%
of total revenues in the corresponding six months of 1997. The
increase dollar amount is primarily attributable to increases in
salary expenses due to additional employees, amortization of
goodwill on the acquisition of MED, general office expenses,
operating expenses of MED, and an increase in legal expenses due
to an acquisition and a pending legal suit (see Item 1-Legal
Proceedings). In addition, certain European evaluation inventory
units were reclassified to property in the amount of $88,372
which increased depreciation expense. Software development costs
are written off as incurred.
Interest income of $38,117 in the six months ended June 30, 1998,
represents interest earned on a promissory note which was repaid
during June 1998. This represents an increase of $31,924 or
515.5% compared to $6,193 in the prior year which represented
interest earned on investments.
Liquidity and Capital Resources
The Company's cash balance at June 30, 1998, was $1,961,148, an
increase of $1,568,436 compared to the December 31, 1997 cash
balance of $392,712. At June 30, 1998, working capital was
$1,973,692 an increase of $1,951,716 from the working capital of
$21,976 at December 31, 1997. Cash of $319,579 was used in
operating activities, cash of $248,474 was used in investing
activities and cash of $2,136,489 was provided by financing
activities in the first six months of 1998. Net accounts
receivable increased $458,114 to $1,395,124 at June 30, 1998,
compared to $937,010 at December 31, 1997, due to increased sales
in communications systems and data transmission and messaging
revenues in the current periods. Inventory decreased $118,519 at
June 30, 1998, compared to December 31, 1997, due to sales of
communications systems from inventory and a reclassification of
European inventory to property in the amount of $88,372. Deposit
in escrow in the amount of $500,000 at June 30, 1998, relates to
a deposit pursuant to a letter of intent with Enerdyne
Technologies, Inc. ("Enerdyne") (see Note 2 and "Subsequent
Events"). Prepaid expenses and other assets increased by
$110,823 primarily due to a deposit paid on new office space.
Acquisition costs in the amount of $165,968 relates to the
acquisition of Enerdyne (see "Subsequent Event"). Notes
receivable increased $37,000 at June 30, 1998, compared to
December 31, 1997, due to monies loaned in connection with a
promissory note to a Canadian Company (see note 5 and "Subsequent
Events").
Accounts payable increased $337,804 at June 30, 1998, compared to
December 31, 1997, primarily due to an increase of payables due
the supplier of BOATRACS communications and messaging systems as
sales and expenses have increased. Accrued expenses increased
$229,334 to $494,610 from $265,276 at December 31, 1997 due
primarily to increased legal and accounting accruals relating to
acquisition operating costs including office related and
personnel expenses. Notes receivable for common stock issued
decreased to zero from $2,117,836. These notes receivable for
common stock consist of a Promissory Note from an officer and
major shareholder of the Company, and an agreement with the major
supplier of the Company. During the six months ended June 30,
1998, the Promissory Note was sold to an outside party at a
discount of $44,274, which was recorded as a deduction to common
stock. The remainder of notes receivable were decreased by
discounts received on purchases of equipment and data
transmission and messaging in accordance with the agreement with
the major supplier.
The Company anticipates making capital expenditures in excess of
$150,000 during 1998 (other than cash for acquisitions) primarily
on computer and office equipment, including office furniture and
equipment for new office space which the Company relocated to
during July 1998. This amount excludes any capital expenditures
which may result from the acquisition of Enerdyne Technologies,
Inc. ("Enerdyne"). ("See Subsequent Events").
To date the Company has financed its working capital needs
through private loans, the issuance of stock and cash generated
from operations. Expansion of the Company's business may require
a commitment of additional funds. To the extent that the net
proceeds of recent private financing activities and internally
generated funds are insufficient to fund the Company's operating
requirements, it may be necessary for the Company to seek
additional funding, either through collaborative arrangements or
through public or private financing. There can be no assurance
that additional financing will be available on acceptable terms
or at all. If additional funds are raised by issuing equity
securities, dilution to the existing shareholders may result. If
adequate funds are not available, the Company's business would be
adversely affected. (see "Subsequent Events").
Year 2000 Issues
In the operation of its business, the Company uses commercial
computer software primarily purchased from or provided by
independent software vendors. After an analysis of the Company's
exposure to the impact of "year 2000 issues" (i.e. issues that
may arise resulting from computer programs that use only the last
two, rather than all four, digits of the year), management has
determined that such commercial software is already
substantially year 2000 compliant, and that completion of year
2000 compliance should not have a material impact on the
Company's business, operations or financial condition.
Management is not in a position to evaluate the extent (if any)
to which any year 2000 issues that may affect the economy
generally or any suppliers or others with whom the Company does
business in particular would also be likely to affect the
Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 9, 1998, the Company filed a complaint in the United
States District Court (Southern District of California) against
Seacor Marine, Inc. ("Seacor") and Globe Wireless, Inc. ("Globe")
seeking damages and injunctive relief for copyright infringement,
unfair competition and declaratory relief arising from the
alleged infringement of the Company's copyright in certain
intellectual property. Such intellectual property formed part of
the assets acquired from MED Associates, Inc. ("MED"), see Note
2. In apparent response to the Company's lawsuit, on May 8,
1998, Seacor and Globe filed a lawsuit in the District Court of
Harris County, Texas against the Company, Summerwood, Inc. and
Charles J. Drobny, Jr. asserting causes of action and seeking
damages and injunctive relief for misappropriation of trade
secrets, misappropriation of confidential business information,
conversion, breach of contract and unfair competition. Such
lawsuit appears to have been filed solely in response to the
Company's lawsuit and appears to allege acts and/or omissions
(all of which are denied) by MED and its chief executive officer.
There does not appear to be a meritorious basis for the causes of
action alleged against the Company. However, no discovery has
yet been conducted and an evaluation of the likely outcome of
lawsuits is premature.
ITEM 2. CHANGES IN SECURITIES
Inapplicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 11, 1998, the Company held the Annual Meeting of
Shareholders at the Qualcomm, Inc. auditorium, San Diego,
California.
The following directors were elected:
FOR AGAINST
Michael Silverman 13,599,856 801
Jon Gilbert 13,599,856 801
Annette Friskopp 13,599,894 763
Giles Bateman 13,599,894 763
Luis Maizel 13,599,894 763
Mitchell Lynn 13,599,894 763
Julius Trump 13,599,894 763
The following proposal was adopted at the meeting:
An amendment to the BOATRACS, Inc. 1996 Stock Option Plan
increasing the number of available shares to 2,000,000.
For: Against: Abstain: Non -Vote
11,185,830 15,865 1,958 4,637,724
ITEM 5. OTHER INFORMATION
Inapplicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Item:
(a)(1) Exhibit 11 - Computation of Net Earnings per
share
(filed herewith).
2.1 Agreement and Plan of Reorganization dated July 7, 1998, by
and between Boatracs, Inc. a California corporation, Enerdyne
Technologies, Inc., a California corporation, Boatracs
Acquisition, Inc., a California corporation and Scott T. Boden
and Irene Shinsato. Incorporated by reference to Exhibit 2.1 to
the Company's Form 8-K filed with the Commission on July 22,
1998.
10.1(a) Employment Agreement dated July 7, 1998 between Scott
T. Boden and Enerdyne Technologies, Inc. a California
Corporation. Incorporated by reference to Exhibit
10.1(a) to the Company's Form 8-K filed with the
Commission on July 22, 1998.
10.1(b) Option Agreement dated July 7, 1998 between Scott T.
Boden and Boatracs, Inc., a California corporation.
Incorporated by reference to Exhibit 10.1(b) to the
Company's Form 8-K filed with the Commission on July
22, 1998.
10.2(a) Employment Agreement dated July 7, 1998 between Irene
Shinsato and Enerdyne Technologies, Inc., a California
corporation. Incorporated by reference to Exhibit
10.2(a) to the Company's Form 8-K filed with the
Commission on July 22, 1998.
10.2(b) Option Agreement dated July 7, 1998 between Irene
Shinsato and Boatracs, Inc., a the Commission on
July 22, 1998.
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act of 1934, the registrant caused this report to be signed on
its behalf by the Undersigned, thereunto duly authorized.
BOATRACS, Inc.
Registrant
August 12, 1998 /s/ MICHAEL SILVERMAN
Date MICHAEL SILVERMAN
CHAIRMAN OF THE BOARD
August 12, 1998 /s/ CURT MCLELAND
Date CURT MCLELAND
CHIEF FINANCIAL OFFICER
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except earnings per share data)
Basic and Diluted
Earnings per Share:
Three Months ended Six Months ended
June 30, June 30,
1998 1997 1998 1997
Net Income (Loss) $(92,746) $(68,351) $37,674 $(185,608)
Basic Earnings per
Common Share ($.01) ($.01) $.00 ($.01)
Diluted Earnings
per Common Share N/A N/A $.00 N/A
Weighted average common
shares outstanding 15,875 12,602 15,854 12,602
Weighted average common
shares outstanding
assuming dilution 15,875 12,602 16,902 12,602
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<PERIOD-END> JUN-30-1998
<CASH> 1,961,148
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<RECEIVABLES> 1,428,124
<ALLOWANCES> 33,000
<INVENTORY> 115,573
<CURRENT-ASSETS> 4,190,103
<PP&E> 543,475
<DEPRECIATION> 220,883
<TOTAL-ASSETS> 5,814,793
<CURRENT-LIABILITIES> 2,216,411
<BONDS> 0
<COMMON> 7,004,897
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<OTHER-SE> (3,406,515)
<TOTAL-LIABILITY-AND-EQUITY> 5,814,793
<SALES> 2,069,928
<TOTAL-REVENUES> 2,069,928
<CGS> 1,249,854
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